MENA Strategic Bulletin

Business and Economy

World Bank approves $700m grant to Jordan to boost human capital

In a significant move to bolster Jordan’s human capital, the World Bank approved a $700m grant under a two-pronged programme aimed at strengthening sectors like education, healthcare and social services.

• The Jordan Human Capital Programme ($300m) focuses on improving governance and public spending in Jordan’s main three sectors: education, healthcare, and social assistance. It prioritises resilience-building measures to safeguard citizens from climate change’s adverse effects.
• The Jordan Modernising Education, Skills, and Administrative Reforms (MASAR) Programme ($400m) inclusive of a $7 million grant from the Global Concessional Financing Facility (GCFF) by the government of Japan; tackles educational gaps. It will focus on increasing access to foundational learning, equip Jordanian youth with relevant skills and access to the job market establishing Technical and Vocational Education and Training

Stakeholder Impact: Given that more than 66% of Jordan’s population is below the age of 30, the programmes target a huge majority in the country. Jordanian citizens, particularly youth and women, stand to benefit most improving employment opportunities. The programme will also benefit refugees, contributing to the 2024–26 Jordan Response Plan for the Syrian Crisis, and are fully aligned with Jordan’s own reform priorities outlined in the Economic Modernisation Vision and Public Sector Modernisation roadmap 2023–25.

What’s Next? The success of this programme hinges on effective implementation. The programmes should cater to current market demands fostering skills like media literacy, innovation, artificial intelligence, while also ensuring English language proficiency (Jordan is ranked 87 out of the 104 countries in the English language proficiency index), which was a main issue that undermined the effectiveness of previous initiatives such as the Education Reform Support Program (US$200 million) by the World Bank back in December 2017. By 2029, MASAR is expected to enrol 25,000 additional students in KG2, 150,000 students in grades 1-3, and graduate 50,000 students from accredited TVET programs. If successful, the initiative can serve as a model for Jordan and other countries seeking to invest in their human capital.

Saudi financial sector records growth in Q2 2024

Saudi Arabia’s banking sector is expected to see a 9% growth in earnings in Q2 2024, bolstered by strong economic activities and investment inflows, including the debut of two Exchange Traded Funds (ETFs) in Shanghai and Shenzhen by Chinese investors.

Stakeholder Impact: The positive performance of banks in Q2 – if it can be sustained – could result in higher returns for shareholders in the banking sector and encourage lenders to expand products and services. Higer earnings could translate into easier access to credit for businesses, having a positive effect on the business environment in KSA.

What’s Next? The sustainability of earnings growth hinges on several external factors. Global economic conditions and oil price fluctuations can significantly impact the banking sector. Monitoring these trends is crucial. Continued improvements to governance and regulation in the sector is necessary to ensure growth translates into responsible lending practices and fosters financial inclusion for all citizens, as this will solidify a strong foundation for the sector’s continued expansion.

Kuwait Oil Company makes huge offshore oil and gas discovery

Kuwait Oil Company (KOC), a subsidiary of Kuwait Petroleum Corporation (KPC), the NOC, recently made a significant discovery in the Al-Nokhatha offshore field. Located east of Failaka Island, the field holds an estimated 2.1bn barrels of light oil and a whopping 5.1trn cu feet of natural gas, which is equivalent to roughly 3.2bn barrels of oil. Currently, Kuwait produces around 2.7m bpd, while domestic consumption sits at around 365,000 bpd. This discovery is a game-changer for Kuwait, potentially increasing their oil reserves and production capabilities, solidifying Kuwait’s position as a major oil producer.

Stakeholder Impact: This discovery has the potential to substantially increase KOC’s oil and gas reserves and solidify its position as a major oil producer. he discovery is large enough to influence global oil prices depending on market conditions and OPEC+ production quotas. The project could create local employment opportunities in the construction, operation, and maintenance phases.

What’s Next? The high potential of Al-Nokhatha field could lead to a faster development process. KOC’s goal is to get the field up and running as soon as possible to increase oil production to meet KPC’s 2040 target of quadrupling its production to 4m bpd by 2035.

Geopolitics and Security

Iran advances de-dollarisation campaign among BRICS members

Iran, a recent member of the BRICS, is advocating for a move away from the US dollar in trade by proposing to supply oil and gas to all BRICS countries to meet their energy needs. Tehran aims to advance its de-dollarisation agenda to counter US sanctions on Iran and weaken US influence in global finance.

Stakeholder Impact: De-dollarisation has been discussed for a long time; however, as no practical steps have been taken we do not expect any immediate impact from these developments. Theoretically, a new BRICS currency if stabilised against the dollar could weaken the power of US sanctions, leading to a further decline in the dollar’s value. De-dollarisation could boost domestic financial systems and promote intra-BRICS trade. Additionally, it could create more options for trade settlements, reducing transaction costs and currency exchange risks. Nevertheless, transitioning away from the dollar might cause short-term instability and require establishing new financial infrastructure for settlements with risks of increased volatility. There might be other drawbacks from potential BRICS countries such as India, who recently shifted to buying US oil and side-lined Russia’s demands.

What’s Next? The next steps will involve negotiations, this will definitely be a topic discussed in the next BRICS conference in October taking place in Kazan, Russia. It could take years to see the full impact of Iran’s push for de-dollarization within BRICS, with potential pushback from the US. Leadership change will also impact Iran-US relations which will be seen in upcoming BRICS discussions and Iran’s de-dollarisation campaign.

Israeli Strikes in Syria and Lebanon

Israeli military operations have intensified in both Syria and Lebanon amid ongoing regional tensions

On the July 16 an Israeli drone strike killed Syrian businessman Mohammad Baraa Katreji near the Lebanon-Syria border. Katreji reportedly had ties to President Bashar Al Assad and had been sanctioned by the US. Other injuries and deaths at Syrian military sites and a residential building in Damascus were reported.

In Lebanon, tensions between Hezbollah and Israel escalated when Hezbollah launched 100 rockets towards various northern Israeli regions in four separate waves on Tuesday night and early Wednesday morning. The Iron Dome defence system intercepted several of these rockets. No injuries were reported. The Israel Defence Forces (IDF) conducted strikes on Hezbollah targets in southern Lebanon, with reports citing that at least five people were killed in these attacks.

Stakeholder Impact: The heightened conflict creates immediate risks, such as property damage and potential casualties, which creates instability, and decreases consumer and business confidence. For Hezbollah, the losses could weaken their operational capabilities but might also rally support among their base, potentially leading to a widening of the conflict and further instability in the region.

What’s Next? The situation must be closely monitored. There could be an increase in military engagements, leading to fluctuations in market stability and energy prices. Alternatively, it could be an incentive for renewed diplomatic efforts to de-escalate the situation, with international actors stepping in to mediate peace talks or broker a ceasefire. Humanitarian issues in the region are going to exacerbate, causing increased displacement and casualties, necessitating international aid and relief efforts.

Houthis reject proposed UN-mediated economic talks with government

The Houthi militia has rejected UN Yemen Envoy Hans Grundberg’s call for economic discussions with the Yemeni government, insisting they will only negotiate on the implementation of a UN-brokered road map to end the Yemeni war. Despite the rejection, the Yemeni Presidential Leadership Council agreed to suspend the revocation of bank licences and proposed conditional talks focused on resuming oil exports and unifying currency policies. Houthi Red Sea attacks continue with the US military confirming multiple attacks on vessels in the Red Sea this week.

Stakeholder Impact: For investors, the Houthi rejection of UN talks on Yemen’s economy signals ongoing instability and challenges in Yemen, seizures and attacks on ships in the Red Sea – which could continue to impact trade routes, investment opportunities and economic recovery efforts in the region. The Suez Canal has recorded severe economic losses as revenues fell from $9.4bn to $7.2bn in the 2023–24 financial year, according to Reuters.

What’s Next? The development raises concerns for the region’s stability. There is a risk of renewed conflict and a worsening humanitarian crisis, prompting a potential increase in international involvement. The UN will keep pushing for dialogue and possibly implement measures against Iran, or the Yemeni government could tighten economic pressure on Houthi areas. The Houthis are feeling in a position of strength and have learnt that their disruptions to this important sea route are effective in gaining what they want – so even post Gaza this will remain a useful tool for them to enact power in Yemen and internationally.

Humanitarian Issues

Israel scales up airstrikes in Gaza

Israeli airstrikes in Gaza have intensified over the past week. Six UN schools were bombed in the past 10 days, and casualty rate in Gaza has reached at least 38,000. Twenty-four of the thirty-six facilities in the healthcare sector are currently closed, and there have been reports of US-supplied bombs being used in strikes to target “safe zones.” The Israeli vote passed in the Knesset opposing Palestinian Statehood

Stakeholder Impact: The Rafah crossing, one of the main points of entry and exit for Gaza, has remained closed since Israeli forces took control of the border area in May making it difficult for relief agencies to access Gaza and for Gazans in need of medical help to travel. The UN estimates that it will take 15 years to clear rubble from Israel’s bombardment of Gaza.

What’s Next? Ceasefire talks will be monitored as pressure grows on the newly elected Labour government in the UK, and economic strain of US involvement. US elections will also impact the course and dynamics of ceasefire talks, UNRWA funding and relief sent to Gaza. The vote in the Knesset will also complicate ceasefire talks and increase tensions in the region between the different key-players in the Israel-Gaza war.

Water Shortages and Blackouts in Iraq

Hundreds of Iraqis in the southern province of Diwaniyah protested against power cuts and water shortages during the extreme heat of summer, causing political unrest and instability. Iraq is the second-largest oil producer in the OPEC cartel, but despite having immense oil and gas reserves, it remains dependent on imports to meet its energy needs illustrating the dire state of public utilities.

Stakeholder Impact: The power cuts and water shortages in Iraq impact citizens access to cool air and clean water amid climate change and heatwaves in the region. Unreliable electricity cripples productivity, and hinders economic activity and productive capacity, decreasing business confidence and investment. This, in turn, hinders Iraq’s ability to improve its infrastructure and break this cycle of crisis.

What’s Next? Discontent is likely to continue, with potential for further protests. This opens an opportunity for Iraq to prioritise diversifying its energy sources beyond just oil and gas, potentially investing in solar or wind power projects.